Published by Atlantic Institute for Market Studies

Menu

On the Methodology of “Measuring Austerity in Atlantic Canada”

Some readers of the report “Measuring Austerity in Atlantic Canada” have raised questions about the methodology employed in the report, most notably by Jordan Brennan, an economist with Unifor. In a press release, he complained that the report did not assess austerity on the basis of government program spending as a share of Gross Domestic Product (GDP):

“The AIMS paper on Atlantic Canadian austerity presumes that government spending should remain static even as regional economies expand and grow. The author compares current government spending in Atlantic Canadian provinces with spending levels in 1980 (adjusted for inflation) and concludes that because current levels are higher than previous levels, austerity cannot be present.”

Our report follows the standard definition of austerity: economically significant cuts to public expenditure arising from difficult economic conditions. Thus, austerity is a severe decrease in real dollars spent by government on programs. Therefore, only declines in spending are acknowledged.

The paper includes a per capita measure because this is the best gauge to interpret the real growth or decline in spending. Apart from the raw spending figures, it shows what governments are actually spending per individual in the polity. Ultimately, governments spend program money on people, not the economy.

Using the measure of government spending as a share of GDP would fail to measure accurately whether austerity is occurring. Austerity is a severe decline in real numerical spending, not declines in spending proportional to economic growth.

For example, a jurisdiction with stagnant annual population growth over a five-year period yet a significant annual reduction in real spending could be said to be undergoing austerity, because it represents a real severe decline in spending per capita. However, a jurisdiction that experiences a 10 per cent increase in GDP over five years but a 5 per cent increase in real spending could not be described as undergoing austerity, even though government spending is not “keeping pace” with economic growth. Per capita measures of program spending changes, therefore, offer a better gauge of austerity than share of GDP.

Indeed, spending as a share of GDP best works as a measure of the size of government in relation to the economy. This metric is not a relevant consideration in the definition of austerity used in the report. The amount of real tax dollars spent per person is such a definition, and a severe and sustained decline in spending per person indicates austerity accordingly.

Editor’s Note: This blog entry is Part 1 in a series of four blog posts related to our recent paper “Measuring Austerity in Atlantic Canada” by Patrick Webber. Following misdirected comments and criticism of the study, we compiled this series to clarify misconceptions and to underscore its findings.